Correlation Between Apple and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both Apple and Goodyear Tire at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Apple and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Goodyear Tire Rubber, you can compare the effects of market volatilities on Apple and Goodyear Tire and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Apple with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Goodyear Tire.
Diversification Opportunities for Apple and Goodyear Tire
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Apple and Goodyear is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and Apple is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Apple Inc are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Apple i.e., Apple and Goodyear Tire go up and down completely randomly.
Pair Corralation between Apple and Goodyear Tire
Assuming the 90 days trading horizon Apple Inc is expected to generate 0.55 times more return on investment than Goodyear Tire. However, Apple Inc is 1.82 times less risky than Goodyear Tire. It trades about 0.06 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.01 per unit of risk. If you would invest 16,395 in Apple Inc on August 31, 2024 and sell it today you would earn a total of 6,000 from holding Apple Inc or generate 36.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Goodyear Tire Rubber
Performance |
| Timeline |
| Apple Inc |
| Goodyear Tire Rubber |
Apple and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Goodyear Tire
The main advantage of trading using opposite Apple and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, Goodyear Tire can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.| Apple vs. Datang International Power | Apple vs. DATAGROUP SE | Apple vs. INFORMATION SVC GRP | Apple vs. Consolidated Communications Holdings |
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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